Terms of a Trust & Implications for Divorce Distribution

Family Lawyers Working on High-Asset Divorce Matters Must Navigate A Number Of Challenging Legal And Factual Issues, Particularly When One of The Parties is a Trust Beneficiary.

A trust is an estate planning tool that individuals may use to control where their assets can be distributed at a later time or even after their death. Trust funds are often intermingled in high asset divorces where one or both spouses are involved as beneficiaries or grantors of the trust. A grantor is the creator of the trust, and the beneficiary is who the trust was created for. The trust becomes a legal entity that protects the assets; however, in a divorce these assets can be distributed not as planned.

Functionality of Trusts in New Jersey

Trusts are created by someone called the grantor, which is a person who wants to control certain assets and how the value of those assets is conveyed to a third party. This third party is known as a beneficiary. There can be multiple beneficiaries, and they can be individuals or an organization. The trustee is the person or entity that is responsible for managing the trust. Trustees have certain duties that they must adhere to, such as maintaining a certain level of fiscal responsibility. It is in this sense that trust funds may accumulate interest over time. Trustees manage the property of the trust strictly for the benefit of the grantor and/or beneficiary. Essentially, trustees control the money that one person wants to give to another person.

Roadmap for the Terms of the Trust

The first step when dealing with a trust in a divorce is to find out how much control the benefitting spouse has over the distributions. Whether or not distributions have been made during the marriage will have a significant effect on the court’s analysis of the marital property. Many complex issues can arise from this simple issue, such as whether or not the distributions were made by a non-party to the divorce or whether the total financial resources were considered before the distribution was made to the beneficiary spouse. Many different things are taken into account to determine whether or not the trust property will be considered for the purposes of paying child support or alimony.

What to Look For in the Terms of Your Trust

Revocable or Irrevocable?

Is the trust revocable or irrevocable? A revocable trust is a trust that can be ended by the grantor at any time. This means that a spouse’s interest in the trust can be lost at any time, or the interest can be devised or conveyed by a will.  This differs from an irrevocable trust which ends differently than what the grantor may wish but ensures the interest of the beneficiary spouse. The next important aspect to be determined is who has the power to make distributions and how the distributions will be made.

Power of Appointment

The power of appointment is vested in a person who can devise the assets of the trust by will, instead of through the distribution scheme of the trust. If the grantor, or creator, of the trust retains this power, then the grantor can revoke the terms of the trust upon their death or at anytime before. On the other hand, the beneficiary may retain this power throughout their lifetime or upon their death. Whoever has this power has massive control of the assets.

Discretion

Discretionary trusts vest the power to control distribution solely in the trustee, which means that they control when distributions are made to the beneficiary or the beneficiary’s spouse. Beneficiaries of these types of trusts typically have zero control of distributions. These trusts differ from nondiscretionary trusts, which vests certain rights and more control with the beneficiary.

Support

Support trusts give the beneficiary more control over distribution because the trust is tasked with the purpose of providing support to the beneficiary in terms of general support, maintenance, education, and general care. Courts will look at certain standards in determining the exact level of control a beneficiary may have over the trust funds in these situations.

New Jersey Court Considerations in High Asset Divorce Matters

In Tannen v. Tannen, the New Jersey Supreme Court analyzed how a trust plays into a high-asset divorce matter. Mrs. Wendy Tannen was given a sizable home after she married Mr. Mark Tannen. Years later, Wendy’s parents created an irrevocable trust only for her benefit, of which she became a co-trustee with her parents.

The terms of the trust stated that distributions were to be made for Wendy’s health, maintenance, support, education, and general welfare. Distributions were only to be made in the sole discretion of the trustees and the beneficiary’s benefit interest, but only after the full financial resources of the beneficiary had been considered. The terms also stated that the beneficiary was strictly prohibited from being compelled to make distributions prior to the final distribution.

In determining alimony, the court closely considers the ability of each party to contribute or support the other spouse after the divorce, as well as the income available to each spouse. Since the terms of the trust strictly prohibited the trustees from allowing Wendy to make distributions prior to the final distribution, the high court held that it was “inappropriate” to consider the trust for purposes of paying child support and/or alimony because the spouse did not have access to the funds. Essentially, Wendy did not have access to the trust funds, and therefore it could not be used in determining any alimony to be paid to her ex-husband, Mark.

Do You Need Help with a Trust Fund while Divorcing? Contact Bronzino Law Firm for Support in Monmouth and Ocean County

There are many different ways that high-asset divorces can go awry. Adding a trust in which a party to the divorce is a beneficiary can make it nearly impossible to predict what the court will do. Having a talented, knowledgeable attorney with experience handling trusts in divorce cases to help you navigate these newly-discovered waters is essential to ensure your success in your divorce matter. Attorney Peter J. Bronzino, ESQ, and the legal team at Bronzino Law Firm have spent years helping clients and divorcing spouses with estate planning, wills, trusts, and divorce-related issues.

With lawyers experienced in all aspects of both of these complicated areas of New Jersey law, we are uniquely prepared to facilitate the process of your divorce, division of assets, property and trust-related disputes with your spouse when divorcing, and other similar challenges. If you are considering filing for divorce or need assistance addressing a trust fund or family trust in your divorce matter in Long Branch, Red Bank, Lavallette, Waretown, Beach Haven, Barnegat Light, Lanoka Harbor, and Jackson, contact us at (732) 812-3102 to talk to a lawyer and get answers to your questions. We provide consultations at no cost and welcome your inquiry.